For Pakistan, sustained economic growth will be tough if political tensions continue

For Pakistan, sustained economic growth will be tough if political tensions continue

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Unexpected higher economic growth may have given prime minster Imran Khan’s embattled government some breathing space but its politics of confrontation remains the major cause of instability in the country. The mayhem witnessed in the National Assembly last week with lawmakers engaging in fist fighting and trading abuses during the budget session has overshadowed the government’s claim of economic revival.
The ugly spectacle marked yet another dark day in the country’s democracy. The persisting political instability also raises question about the sustainability of a fragile economic recovery. With just two years left for the end of its term, the Khan government faces multiple challenges on both political and economic fronts. An unrelenting onslaught from the opposition has increased its predicament.
Pakistan’s economy has performed beyond expectations with all major economic indicators showing positive trends amid the COVID-19 pandemic, resulting in a 3.94 percent economic growth rate this fiscal year, compared to a negative 0.47pc in 2019-20. Prime Minister Imran Khan claimed that the higher GDP growth reflected the success of his government’s economic policies while managing the pandemic.
Although the opposition and some independent economists have disputed the government’s growth estimates, there are strong signs of economic recovery spurred by significant rise in industrial output and higher yield in the agricultural sector. Some economists contend that the higher growth figures are partly due the low base of last year when the economy contracted due to the effects of the pandemic.
It’s apparent that despite positive indicators in some key sectors, the economy is still not out of the woods. But the higher growth figures have encouraged the government to shift its focus from stabilization to a growth-oriented policy. The new policy approach is reflected in the 2021-2022 budget presented by the newly appointed finance minister, Shaukat Tarin.
It has laid out an ambitious development plan. It also proposes to incentivize industrial and service sectors to boost economic growth. With no new major taxes, the budget seems to have been prepared with an eye on the elections that are two years away. But its failure to bring down inflation that is now in double digits undermines the government’s effort to win pubic support.
A major constraint faced by the government in its effort to control the hike in utility charges is IMF conditionality. The government had gone to the Fund some two years ago to deal with its burgeoning current account deficit. The program has helped the country stabilize the situation, but conditionality attached to it remains a major hindrance to the government’s pursuance of a growth policy.

It’s apparent that despite positive indicators in some key sectors, the economy is still not out of the woods.

Zahid Hussain

The finance minister says he has no intentions of shelving the IMF agreement. But it will be very tough for the government to get the multilateral agency to relax its conditionality. Most economists agree that breaking off from the IMF program would increase the country’s economic woes. It will be a serious challenge for the government to maintain a balance between IMF prescriptions and its new growth based economic policy.
What happened last week has marred any meaningful debate in the National Assembly on the finance bill. With its slim majority, the government will not face any problem in getting the budget passed from the parliament, but prevailing political tension will make it extremely difficult for it to take tough economic decisions.
Despite the fragmentation of the Pakistan Democratic Movement (PDM), the opposition parties are united in the parliament and giving a tough time to the government, which lacks clear direction. With the prime minister reluctant to develop a consensus on major political and economic issues, there is no sign tensions will ease.
The government’s recent move to bulldoze some important laws that includes a highly controversial election reform bill has further vitiated the political atmosphere.  While the opposition has rejected the bill saying that it was aimed at manipulating the elections, the Election Commission of Pakistan has also objected.  The issue may ultimately land in the Supreme Court, dragging the government into yet another complex legal battle and taking the focus away from more important economic issues.
Internal political conflicts have long affected domestic and foreign investment, which has led to low economic growth in the country. With its refusal to sit with the opposition for a smooth functioning of democracy, the government will not be able to achieve its goals of sustained economic growth in the country.
The spectacle of lawmakers hurling abuses at each other instead of seriously debating the challenges faced by the country does not give confidence to investors. And so it remains to be seen whether the Imran Khan government will meet its promise of putting the country back on economic progress.
– Zahid Hussain is an award-winning journalist and author. He is a former scholar at Woodrow Wilson International Centre for Scholar, USA, and a visiting fellow at Wolfson College, University of Cambridge, and at the Stimson Center in Washington DC. He is author of Frontline Pakistan: The struggle with militant Islam (Columbia university press) and The Scorpion’s tail: The relentless rise of Islamic militants in Pakistan (Simon and Schuster, NY). Frontline Pakistan was the book of the year (2007) by the WSJ.
Twitter: @hidhussain 

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